The News on Sunday: Why are sugar millers not ready to give support price of sugarcane announced by government to the farmers?

Iskander Khan: The government used to fix support price for sugar in the 1950s when it procured sugar at a fixed rate from mills. Later, when government abolished zoning system it started announcing support price. In legal terms, support price is not market price; it is a price to support somebody. This means if there is some difference between support price and market price it is the duty of the government to bear the difference.

According to the current market price of sugar, the rate of sugarcane should not be more than 150 per 40 kg while the government announced support price at Rs 180. Now, this is the government’s duty to fill this deficit of Rs30 either directly to the farmers or in the shape of subsidy on the inputs.

The other way should be giving subsidy to millers on sugar export. It is a wrong impression that subsidy is given to sugar mills. In fact, it is not transferred to sugar mills as the government fixes the price, this amount benefits the farmers. The price of sugar in the international market is on the decline but the price of sugarcane has been increased. Sugarcane constitutes 80 per cent of the cost of sugar. At current support price it is not possible for sugar mills to run its operations.

People say that the sugar industry works like a cartel. The industry has suffered massive losses during the last three years. If it is a cartel, the owners would have reached an agreement. They could have controlled ex-factory price and would not allow prices to decline in the market. But that is not the case and sugar mills have suffered losses of millions of rupees during the last three years.

We need to understand that prices increase or decrease on the basis of market system of demand and supply. Around 70-75 per cent of sugar is used in industries like beverages, sweets, bakery products, and medicines, etc. When prices of sugar increased the prices of these commodities shot up but when the prices of sugar decreased by Rs30 per kg, they have not decreased prices. The major beneficiary of this decrease in the price of sugar is the industries mentioned above and not the consumers.

TNS: You have denied that sugar industry works as a cartel but a report of the Competition Commission in 2009 declared that sugar industry works as cartel.

IK: There is nothing in that report. It termed us a buying cartel. In fact, the government fixed the price of sugarcane at Rs80 per 40 kg. There was shortage of sugar and sugarcane in the market and that raised the price of sugarcane up to Rs120. Some millers wrote letters to other millers asking them not to pay such a heavy price because it would increase the price of sugar in the market. They would have called us a cartel if sugar millers were not ready to pay the announced price of Rs80.

I issued a statement at that time explaining that sugar is made in three months while sold in 12 months. We get loans of billions of rupees of working capital to pay farmers price of sugarcane. There is an interest cost of 50-60 paisa per kg of sugar every month. If sugar price is increased by Rs 2-3 rupees in three months that does not go to the mills but to the banks. This does not mean that we are a cartel. That report was basically for public consumption.

TNS: But how do you see the current crisis in Sindh where millers, as a whole, refused to pay support price to the growers? They have delayed crushing season. Does it not imply that sugar sector works as cartel?

IK: No. In fact, the Sindh High court has given the decision in favour of millers. The government of Sindh also notified the support price of Rs155 per maund of sugarcane. The provincial government asked millers to start crushing but once millers started crushing, the provincial government announced a new price of Rs185. If the current situation persists, no sugar mill would be in a position to ensure payments to the farmers. The banking sector, amid this situation, does not give us loans. This system cannot work. When the government fixes sugarcane prices and eight per cent of excise tax, why does it not fix sugar price once and for all?

TNS: What is the reason for delaying crushing season every year?

IK: In the 1950s, sugar mills used to start crushing season in October and November. The climate of Pakistan was totally different at that time; winter season used to start in early October. One needs to understand that sugarcane crop matures in cold season. Now, winter starts in December. It is not possible to start crushing according to the old traditions of 1950s. With an early start of crushing season we lose 0.3 million tons of sugar.

There is another allegation that by delaying the crushing season, the area under wheat cultivation is also decreased. This is not the case. Wheat is cultivated at an approximate nine-million hectare area, whereas sugarcane is cultivated only on one-million hectare area. This allegation does not make sense.

Talking about sucrose content, we have been demanding since long to associate the price of sugarcane with the amount of sucrose content. Link the price of sugarcane with the sucrose content in National Sugar Policy and no farmer will insist to start crushing even in December. They will say crushing should be started in January instead. The sucrose content level is different in different areas; in Rahim Yar Khan it is 12 per cent while in DI Khan it is 9.5 per cent while price of sugarcane in both districts is the same.

TNS: Don’t you think sugar mills in Pakistan have serious issues of efficiency?

IK: Mills does not grow sugarcane. It’s the farmers who cultivate it. There are no incentives for farmers who prefer growing Indian sugarcane, which is taller and heavy in weight but produces less juice. Our pricing system is wrong. Mills are not responsible for this. There are more than 4000 sugarcane laboratories operating in India whereas in Pakistan there are only four laboratories, which are not even working properly. There should be laboratories at district level to identify best variety of sugarcane according to soil conditions.

TNS: But there are serious issues regarding lack of efficiency in the sugar industry.

IK: No. Production of sugar depends on the quality of crop. Sugarcane is produced in fields, the mills only process it. Just like flour. Currently, all sugar mills are utilising latest machinery but due to poor policies of the government, there are no incentives for farmers.

TNS: Sugar mills do not make timely payments to farmers. What do you say on that?

IK: Last year, approximately Rs200 billion payments were made to farmers. It is true that payments of about Rs400 million were delayed. There are only 4-5 mills that delay payments but the allegation is put on the whole sector.

TNS: Do you agree that a majority of sugar mill owners have political connections, controlling the industry and making policies which favour their business?

IK: This is a misconception. Out of a total of 84 sugar mills in Pakistan only 10 mills are owned by political families. The real problems are: less yield, lower juice content, and delayed payments to farmers. Revise the 1950s act that governs the sugar sector. If the sugar industry has links with politics, why have 50 per cent sugar mills been running in losses? If the situation continues, next year 50 per cent of sugar mills would be bankrupt.

Approximately, owners of sixty sugar mills in Punjab want to sell off their mills.

During Musharraf’s regime 30 new mills were established. We opposed that move. The area under cultivation of sugarcane is the same. The new mills only increased the cost of production of sugar. We do not need to have more than 50 sugar mills in Pakistan. One of the major reasons of the ongoing crisis is due to this massive numbers of sugar mills. In fact, there is no sugar policy in the country.

TNS: But is sugar industry not a highly protected sector in Pakistan?

IK: If you are talking about import duty and exports subsidies I want to share that India has imposed 40 per cent import duty. You produce 5.7 million tons of sugar while your local requirement is not more than 4.2 million tons. What would you do with excessive sugar? Do not give subsidy to mills, give it to the farmers. It was the sugar industry of Brazil that rescued its economy from bankruptcy. Pakistan can also earn USD2.0 billion if this industry is linked with the level of sugar content through export of sugar and ethanol. Last year, Pakistan earned USD1.2 billion through export of sugar and ethanol. India also has a similar problem. The Indian government provided Rs60 billion interest-free loans to pay to farmers. Indian farmers also get subsidy on electricity and other inputs. If you talk about import duty, raw sugar is available at Rs30 per kg. If there was no import duty, mills would import raw sugar. It costs only Rs10 per kg to process raw sugar and we can easily sell sugar to the market at Rs45. This duty is imposed for protection of farmers and not in the interest of mills owners.